Leases

6 Months Ended

Jun. 29, 2019

Leases:

The Company leases the majority of its retail store locations, two distribution sites, its Merchandise Innovation Center, and certain equipment under various non-cancellable operating leases. The leases have varying terms and expire at various dates through 2037. Store leases typically have initial terms of between 10 and 15 years, with two to four optional renewal periods of five years each. The exercise of lease renewal options is at our sole discretion. The Company has included lease renewal options in the lease term for calculations of its right-of-use assets and liabilities when it is reasonably certain that the Company plans to renew these leases. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The Company accounts for lease components (e.g., fixed payments including rent, real estate taxes, and insurance costs) together with nonlease components (e.g., fixed payment common-area maintenance) as a single component. Certain lease agreements require variable payments based upon actual costs of common-area maintenance, real estate taxes, and insurance. Further, certain lease agreements require variable payments based upon store sales above agreed-upon sales levels for the year and others require payments adjusted periodically for inflation. As substantially all of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement or modification date in determining the present value of lease payments.

In addition to the operating lease right-of-use assets presented on the Condensed Consolidated Balance Sheets, assets, net of accumulated amortization, under finance leases of $27.9 million are recorded within the Property and equipment, net line on the Condensed Consolidated Balance Sheets as of June 29, 2019.

The following table summarizes the Company’s classification of lease cost (in thousands):



		Fiscal Three Months Ended		Fiscal Six Months Ended
	Statement of Income Location	June 29, 2019		June 29, 2019
Finance lease cost:
Amortization of lease assets	Depreciation and amortization	$	1,045	$	2,090
Interest on lease liabilities	Interest expense, net	395		800
Operating lease cost	Selling, general and administrative expenses	87,797		174,018
Variable lease cost	Selling, general and administrative expenses	18,806		37,151
Net lease cost		$	108,043	$	214,059

The following table summarizes the future maturities of the Company’s lease liabilities (in thousands):



	Operating Leases ^(a)			Finance Leases			Total
2019 ^(b)	$	179,491		$	2,610		$	182,101
2020	347,852			5,234			353,086
2021	326,494			5,294			331,788
2022	302,676			4,172			306,848
2023	277,599			2,980			280,579
After 2023	1,256,672			20,169			1,276,841
Total lease payments	2,690,784			40,459			2,731,243
Less: Interest	(497,710		)	(9,348		)	(507,058		)
Present value of lease liabilities	$	2,193,074		$	31,111		$	2,224,185

(a) Operating lease payments exclude $192.4 million of legally binding minimum lease payments for leases signed, but not yet commenced.

(b) Excluding the six-month period ended June 29, 2019.

The following table summarizes the Company’s lease term and discount rate:



	June 29, 2019
Weighted-average remaining lease term (years):
Finance leases	9.4
Operating leases	8.9
Weighted-average discount rate:
Finance leases	5.3	%
Operating leases	4.4	%

The following table summarizes the other information related to the Company’s lease liabilities (in thousands):



	Fiscal Three Months Ended		Fiscal Six Months Ended
	June 29, 2019		June 29, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Financing cash flows from finance leases	$	908	$	1,805
Operating cash flows from finance leases	395		800
Operating cash flows from operating leases	89,515		162,980

The Company adopted new lease accounting guidance in the first quarter of fiscal 2019, as discussed in Note 1 and Note 13 to the Condensed Consolidated Financial Statements, and as required, the following disclosure is provided for periods prior to adoption. As of December 29, 2018 future minimum payments, by year and in the aggregate, under leases with initial or remaining terms of one year or more consisted of the following (in thousands):



	Capital Leases			Operating Leases
2019	$	5,215		$	344,836
2020	5,234			328,589
2021	5,294			306,572
2022	4,172			284,327
2023	2,980			260,518
Thereafter	20,169			1,175,972
Total minimum lease payments	43,064			$	2,700,814
Amount representing interest	(10,148		)
Present value of minimum lease payments	32,916
Less: current portion	(3,646		)
Long-term capital lease obligations	$	29,270